TradeKing Midday Market Call Recap - $SPX & $WFC
Quick Takes Pro Market Technician Michael Kahn Analyzes the S&P 500:
SPX was trading at 2,067.66 at the time of analysis, down 8.99 on the day. The index has had continued trouble getting through the band of resistance and has pulled back this month. Michael points to a bearish divergence between price and volume. Waning momentum is also present in RSI, stochastics, and MACD. This could be indicative of a larger problem in the market potentially fueled by the possibility of the United Kingdom leaving the European Union as well as potential trouble in the bond market. There’s current stagnation in the short term bond rates while long-term bond rates are plummeting creating a flattening yield-curve.
Michael Kahn’s Chart of the Day: Wells Fargo & Co (WFC):
Wells Fargo & Co was trading around the $47.57 level during the time of analysis, below its 50-day moving average of $49.59. As Michael pointed out in his review of SPX, we’re currently seeing a flattened yield curve which can be expensive for banks as they borrow on the short end and lend out on the long end. With that being said, overall the trend in banking is down and WFC is no exception. The stock saw a very nice run coming into the middle of last year before it stumbled, recovered, then experienced another sell-off earlier this year. Since the sell-off, we’ve seen a wedge pattern emerge which could be viewed as a corrective recovery in a decline. That wedge pattern has now broken to the downside dragging the 50-day moving average lower. Michael wouldn’t be surprised to see WFC drop to the mid-$40’s.
TradeKing “Options Guy” Brian Overby Analyzes Wells Fargo & Co’s Volatility & Dividends:
Wells Fargo & Co’s 30-day Implied Volatility (IV) has seen a steep increase recently which may be fueled by the uncertainty in the world market, the bond market, and WFC’s upcoming earnings announcement. Even with the jump in IV, WFC is still in the middle of its 6-month range.
Wells Fargo & Co pays quarterly dividends yielding about 3.24% annually with its next earnings announcement slated for the morning of 07/15/2016.
Brian Overby Shares WFC Paper-Trading Strategies:
Brian’s first paper trade was an out-of-the-money Long Put, a bearish trade that will look to take advantage of the time between now and earnings. His second paper trade was a Back Spread with Puts, a more volatile strategy that sells one put to pay for two puts.
Brian’s First Paper Trade - Long Put
- Buy 1 Jul 15th 2016 WFC 46.00 Put
- 31 days to expiration
- Bid 0.97, Mid 0.98, Ask 0.99 for the option
- Debit is 0.98 if we get it at the mid-price, though note this is not always possible
- Maximum potential loss: 0.98
- Maximum potential gain: 45.02
- Total commission to enter this trade at TradeKing is $5.60
Brian’s Second Paper Trade - Back Spread with Puts
- Buy 2 Jul 1st 2016 WFC 47 Put
- Sell 1 Jul 1st 2016 WFC 49 Put
- 17 days to expiration
- Net Bid 0.04, Mid 0.11, Ask 0.25 for the strategy
- Net credit is 0.11 if we get it at the mid-price, though note this is not always possible
- Maximum potential loss: 1.89
- Maximum potential gain: 94.11
- Total commission to enter this trade at TradeKing is $6.25
Important notes: Option prices are given as a per-contract amount. Multiply loss and gain figures by 100 shares and by the number of contracts traded to determine the amount of the full potential loss or full potential gain. No additional calculations are needed to determine commission costs.
TradeKing Options Tools used:
- Long Put
Options involve risks and are not suitable for all investors. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options, sent to you in previous communication. Additional copies may be obtained by calling TRADEKING at 877-495-KING or by visiting www.TradeKing.com/ODD.
Multiple leg options strategies involve additional risks, and may result in complex tax treatments. Please consult a tax advisor.
At the time of publication and in the preceding month, TradeKing and/or Michael Kahn did not have ownership greater than 1% in any stocks mentioned; did not have any other actual, material conflict of interest known at the time of publication; have not received compensation from a public offering nor from investment banking services related to any companies mentioned within the past 12 months, nor expect to receive any in the next 3 months; nor engaged in market making in the securities mentioned.
System response and access times may vary due to market conditions, system performance, and other factors.
Any strategies discussed and examples using actual securities and price data are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities. Past performance is not a guarantee of future results. Consider the following when making an investment decision: your financial situation, your risk profile and transaction costs.
Market timing is a complex investment strategy which involves risk and may incur additional commission costs.
While implied volatility represents the consensus of the marketplace as to the future level of stock price volatility, there is no guarantee that this forecast will be correct.
TradeKing charges $4.95 for online equity and option trades, add 65 cents per option contract. TradeKing charges an additional $0.35 per contract on certain index products where the exchange charges fees. See our FAQ for details. TradeKing adds $0.01 per share on the entire order for stocks priced less than $2.00. See our Commissions + Fees page for commissions on broker-assisted trades, low-priced stocks, option spreads, and other securities.
The projections or other information generated by TradeKing's tools regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The calculations do not take into consideration all costs, such as commissions and margin interest which may impact the results shown. It is the user's sole responsibility to select the criteria to enter in the TradeKing's tools, or to choose among the predefined screens, and to evaluate the merits and risks associated with the use of the tools before making any investment decisions. TradeKing is not responsible for any losses that occur from such investment decisions.
TradeKing Webcasts and All-Star Blog are provided for educational and informational purposes only. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing's systems, services or products.
TradeKing selects and defines as All-Stars certain independent market commentators who are recognized industry personalities and experienced traders and who provide timely market commentary via the TradeKing All-Star Blog and/or TradeKing Webcasts. Each All-Star commentator's bio, related qualifications and disclosure as to their relationship with TradeKing can be found on the All-Star Roster. The selection of All-Star commentators is solely based on the quality and style of the content provided. TradeKing does not measure, endorse, or monitor the performance or correctness of any statement or recommendation made by independent All-Stars commentators. Supporting documentation for any claims made by TradeKing All-Stars will be supplied upon request by the author of the post, who is solely responsible for the views expressed. Contact TradeKing All-Stars by sending an email message to [email protected]